Fiscal policy uses public spending levels and tax rates to influence the economy. Policymakers use fiscal policy  to find a level of public spending that stimulates economic demand without creating an 🔯undue tax 🧸burden for citizens and businesses.

"Reaganomics"

Ronald Reagan promoted 澳洲幸运5官方开奖结果体彩网:economic growth by reducing tax levels with policies based on "澳洲幸运5官方开奖结果体彩网:supply-side" or "澳洲幸运5官方开奖结果体彩网:trickle-down" economics, dubbed "澳洲幸运5官方开奖结果体彩网:Reaganomics." Reagonomics held that upper-income taxpayers with reduced taxes would spend more and invest in businesses, driving economic expansion and job growth. Reagan integrated the economic theories of Arthur Laffer, who summarized the hypothesis in a graph known as the "澳洲幸运5官方开奖结果体彩网:Laffer Curve." Congress agreed to a 25% overall rate cut in late 1981 and 澳洲幸运5官方开奖结果体彩网:indexed rates for inflation in 1985.

Initially, inflation was reignited, and the 澳洲幸运5官方开奖结果体彩网:Federal Reserve hiked interest rates. This caused a 澳洲幸运5官方开奖结果体彩网:recession that lasted for about two years. But once inflation was controlled, the economy grew, and 16.5 million jobs were created during Reagan's two terms. However, the national debt increased. While 澳洲幸运5官方开奖结果体彩网:gross domestic product (GDP) rose approximately 34% during Reagan's presidency, it's impossible to determine how much of that growth was due to tax cuts versus 澳洲幸运5官方开奖结果体彩网:deficit spending.

Clinton Years

Under President Bill Clinton, the Omnibus Budget Reconciliation Act passed in 1993 and included a series of tax increases. It hiked the top 澳洲幸运5官方开奖结果体彩网:income tax rate to 36%, with an additio🍷nal surcharge of 10% for the highest🐈 earners.

It removed the income cap on Medicare taxes, phased out certain 澳洲幸运5官方开奖结果体彩网:itemized deductions and exemptions, increased the taxable amount of 澳洲幸运5官方开奖结果体彩网:Social Security, and raised the corporate rate to 35%.During Clinton's presidency, the economy added approximately 18.6 million jobs. The stock market went on a bull run, as the 澳洲幸运5官方开奖结果体彩网:S&P 500 index rose 210%.

By 1997, unemployment had dropped to 5.3%, and Republicans passed the 澳洲幸运5官方开奖结果体彩网:Taxpayer Relief Act. This act reduced the top capital gains rate from 28% to 20%, instituted a $500 澳洲幸运5官方开奖结果体彩网:child tax credit, exempted a married couple from $500,000 of 澳洲幸运5官方开奖结果体彩网:capital gains on the sale of a primary residence, and raised the 澳洲幸运5官方开奖结果体彩网:estate tax exemption from $600,000 to $1 million. It also created 澳洲幸运5官方开奖结果体彩网:Roth IRAs and 澳洲幸运5官方开奖结果体彩网:education IRAs and raised the income limits for deductible IRAs.

Policy Under President Obama

President Barack Obama consistently pushed for higher taxes on the rich to help 澳洲幸运5官方开奖结果体彩网:reduce the deficit. He also fought for and passed significant tax relief for working families and small businesses. For the typical middle-class family, tax cuts totaled $3,600 over the first four years. 

Although President Obama targeted new opportunities for savings like the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC) for working families, and the American Opportunity Tax Credit (AOTC) for college tuition, to provide about 24 million working and middle-class families a year a tax cut of about $1,000, the national deficit rose during his eight years in office from $7.5 trillion in 2009 to $14.1 trillion in 2016. 

Trump's Tax Cuts and Jobs Act

President Trump signed the 澳洲幸运5官方开奖结果体彩网:Tax Cuts and Jobs Act (TCJA) into law on Dec. 22, 2017, with significant changes to the tax code. The Act reduced marginal effective tax rates on ꩵnew investments and reduced the differences in rates across asset types, financing methods, and organizational forms.

The TCJA included $5.5 trillion in gross tax cuts, nearly 60% of which goes to families. The economy grew faster after 2017 than predicted before TCJA, but studies show that it significantly reduced federal revenue relative to what would have been generated without TCJA. However, in the third quarter of 2020, real GDP grew at an annualized rate of 33.1%, doubling a previous record set seventy years prior.

President Biden's Proposals

President Biden’s Fiscal Year 2024 Budget includes tax increases that would target businesses and high-income individuals and capture $4.8 trillion. According to the Tax Foundation, the budget would reduce economic output by about 1.3% in the long run and eliminate 335,000 full-time jobs. However, the Office of Management and Budget (OMB) estimates the FY 2024 budget would reduce the 澳洲幸运5官方开奖结果体彩网:debt-to-GDP ratio by seven percentage points.

The Bottom Line

Economists and policymakers debate whether higher rates result in increased tax revenues. Fiscal policy tries to strike a balance between public spending levels and tax rates to influence the economy as measured by the 澳洲幸运5官方开奖结果体彩网:tax-to-GDP ratio. In a constant balancing act, policymakers must weigh 澳洲幸运5官方开奖结果体彩网:ne𒁏w taxes against losses that society might fac𒁏e due to those taxes. Changes in rates alter behavior, and taxpayers commonly focus on minimizing their ♔tax burden.